Monday, August 3, 2015

Create your own dividend ETF with Motif Investing

Motif Investing is an established brokerage which lets investors create their own portfolios, and purchase them for a set commission. Each investor can build a portfolio of up to 30 individual securities, and then purchase that portfolio for a single commission of $9.95. This works out to 33 cents per trade on 30 securities, which is cheaper than Interactive Brokers on a per-trade basis. If you were making 30 individual stock trades at Scottrade, you would have to pay $210. At Tradeking, you would have to pay $148.50 for purchasing those 30 individual securities. At Schwab, it would cost $268.50 to assemble a portfolio of 30 individual stocks.

There are no monthly fees and no account minimums, which makes Motif Investing a good broker for new dividend investors. Motif Investing also offers single stock purchases for a low price of $4.95/trade, which is relatively cheap as well. They do require a minimum investment of $250 to purchase a Motif. You can buy or sell Motifs for $9.95 or you can re-balance also for $9.95/trade. The brokerage is SIPC insured, which means that securities up to $500,000 are protected in case the brokerage firm goes under. They do not reinvest dividends yet, but this is not really an issue for me, since I reinvest dividends selectively.

These days, investing in exchange traded funds is all the rage. The problem with many of those funds is that they charge a commission to buy or sell, depending on the broker you use, and then they also charge an annual management fee on top of that. With a Motif, you can have direct ownership of up to 30 stocks reflecting one idea, you can have diversification across multiple securities, greater control over capital gains, and most importantly, you will not have to pay any management fees.

If you think about it, this service is pretty cheap for those investors who would like to build a portfolio by buying a basket of securities that fit their strategy. The baskets of securities that you can build are called” Motifs”.

Recently, I started using this service, and built and purchased my first Motif. The nice thing about it is that I was able to buy an equally weighted portfolio of several individual securities for just $9.95 in total. On a $2,000 investment, this one-time cost is less than half a percent. The nice thing is that this portfolio is instantly diversified, which reduces risk significantly.

I had been searching for a service like that for a long time. This is because I usually have a lot of ideas each month, but had to limit myself to only 2 – 3 each month in order to keep commissions low as a percentage of purchase price. I like to keep commission costs below 0.50%. Since I only have a limited amount of money to invest every month, and because I used to pay something like $5/trade before, I could only afford to make those 2 – 3 investments per month. This meant that I would only be able to purchase shares in a given company once per year. The drawback was that I would find a good company and add shares to it, but then it would go higher quickly, which meant that I couldn’t’ add more and I was left with a small position. I could purchase shares more often, I could have built a higher position and profit more.

With Motif investing, I could actually purchase shares in as many as 30 companies I like, and I can always change the list of companies I want to purchase when I have cash on hand. That way, I do not have to wait for 6 – 12 months, before I could add to my exposure in specific companies.

Opening an account is pretty easy and straightforward, as it requires the usual pieces of information such as name, address, social security information etc. I funded my account using ACH, which linked my checking to the Motif Investing brokerage.

I believe that Motif Investing could be useful to those investors who want instant diversification, more control over the types of companies they want to buy directly all in one low cost per transaction.

Currently, they have a promotion, where if you open a new brokerage account, and fund it with at least $2,000 within 30 days, you can receive up to $150 in cash. While Motif Investing offers Individual Retirement Accounts, unfortunately this offer is not applicable to IRA’s.

One qualifies for the bonus only after they make a few Motif investments. If you make 1 motif trade your will receive $50, while 3 motif trades will earn you a $75 cash bonus. If you make 5 motif trades you will receive $150 cash bonus. I believe that if you make 5 motif investments on a $2,000 account, this will be a good risk free return on investment of over 5%, which is not bad. ( $150 cash bonus minus 5 motif trades at $9.95 each, divided by $2000 cash deposit).

Overall, by opening an account with $2,000 and making 5 Motif investments, you will be able to earn a cash bonus of $150. This turns out to a return of over 5%, which is not bad. This of course is on top of the returns you will already generate from dividend stocks. I have learned never to despite the days of small beginnings. Again, this limited time offer will expire soon, so you have to act fast if you qualify. You can start by clicking on the banner below or by clicking on this link.

Full Disclosure: I will earn an affiliate commission for each customer that signs up for using Motif Investing

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